The phrase on the lips of accountants and VAT taxpayers everywhere at the moment is “Making Tax Digital”. It’s under discussion almost everywhere you look – and with many VAT taxpayers now preparing for the switchover in February, there’s an impending sense of the deadline looming. However, while there are certainly some deadlines to meet, it’s not all doom and gloom. Her Majesty’s Revenue and Customs, or HMRC, has built in some flexibility – known as the “soft landing period” – designed to help you navigate the transition.
What is Making Tax Digital?
Before you can fully appreciate just what the soft landing period means and what sort of flexibility it offers you, however, it’s important to first ensure that you fully understand what Making Tax Digital (MTD) itself actually is. MTD is a policy designed by HMRC to reduce lost revenue to the Exchequer: with one estimate suggesting that the Revenue loses £9bn in tax through errors each year, it’s a pressing problem.
From April onwards, it will no longer be possible to compile your VAT tax return on paper or with certain types of software. All payments will have to go through a piece of kit that is fully compliant with HMRC’s APIs, a technical feature that ensures the smooth transfer of accurate information. It’s also likely to start affecting other taxpayers, such as income taxpayers, in the future. However, no exact date for this has yet been set.
What is the soft landing period?
While the deadline for becoming MTD compliant is indeed this April, there is some flexibility in place. For the first 12 months after MTD comes into force, it will still be okay if firms don’t have every single digital information transmission channel in place. During the so-called “soft landing period”, organisations will still be able to “cut and paste” most of the information required for the return. The return itself, though, will need to go through an approved API system.
The soft landing period is there as a safety net, just in case a crucial part of your transition plans – such as the arrival and set up of a new accounting software package – goes wrong. According to UK200, it’s likely to cost small to medium enterprises an average of £5,360 to get ready for MTD – so hiccups are to be expected. However, it’s not advisable to use the period as a deliberate delay tactic, just in case the solution is then delayed even further. By acting now to get set up, you’ll most likely be able to get ready for MTD well in advance.
The soft landing period, then, is a great way for firms that are making the shift to MTD to relax in the knowledge that they won’t be penalised if they continue to use the “cut and paste” option. However, it’s still vital to act fast, and to be sure that you’re ready to transition as soon as possible.